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Malaysian palm oil futures on the Bursa Malaysia Derivatives ended higher on Monday on profit-taking and possible short-covering as most of the negative fundamentals were already priced in.
Palm had tumbled to a March 2009 low of 1,954 ringgit in early trade as financing troubles in China, coupled with lacklustre export demand, triggered speculative selling. Sluggish demand for palm oil products this month also weighed on the market. Cargo surveyor Intertek Testing Services said exports of Malaysian palm oil from August 1-25 fell 15.3 per cent compared to the same period in July.
CPO active month November futures finally bounced back after testing key medium-term supports. As mentioned earlier, the extremity of the fall makes us believe that there is more to come.
As illustrated in the previous update, stronger support at MYR 1,945/tonne levels could be tested now, being a possible target are in the coming weeks. Also, extremely oversold conditions warn us of possible retracement in the coming sessions.
Resistances will now be seen at MYR 2,095-2,100 levels being a trend line resistance point and a stronger one will be at MYR 2,165-75. We expect the downtrend to continue lower after testing the above mentioned resistances.
However, this corrective retracement has the potential to extend towards MYR 2,250 or a fibo retracement level of MYR 2,320 before resuming the downtrend towards MYR 1,900/tonne levels.
As mentioned earlier, a corrective A-B-C in progress with an equality target now stretching to 2,135 levels or even lower. With the present structures, there is a good chance that we could be in a five wave impulse moving lower with equality targets near 1,700/tonne levels. The present decline has targets near 1,998-1,957 from where a strong retracement could commence.
Despite, a minor retracement, RSI is still in the extremely oversold zone now indicating a possible upward correction in the offing.
The averages in MACD are still below the zero line of the indicator hinting at bearishness to be intact. Only a crossover again above the zero line could hint at a resumption in the bullish trend.
Therefore, look for palm oil futures to test the resistances and then decline again.
Supports are at MYR 1,945, 1,900 and 1,825. Resistances are at MYR 2,095, 2,165 and 2,250.
(The author is the Director of Commtrendz Research. There is a risk of loss in trading.)
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